How to Pick (and Manage) Credit Cards for the Best Travel Rewards - featured on Lifehacker: Two Cents
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Note: this article was featured on Lifehacker’s finance sub-blog Two Cents here!
Everybody loves to visit foreign countries and exotic lands, but it can be tough to save up for the travel that you’d like to do. Luckily, credit card miles are a great way to find your way to Europe for the trip you’ve always wanted.
Rewards credit cards aren’t for everybody. If you carry a balance on your credit cards, tend to overspend with credit or don’t have great credit history you may want to hold off on rewards for now. Instead, focus on breaking the paycheck-to-paycheck cycle and revisit this later. If you pay off your credit cards each month, have good credit history or get expenses reimbursed through work you might want to consider rewards cards.
This guide will help you choose the right cards, learn some strategies to earn extra points, and figure out how to best manage multiple credit cards responsibly.
Choose the Right Credit Card(s)
Credit card rewards most often come in the form of points, and different cards will let you use points in different ways. The three different types of programs work pretty differently:
- Cash-Back Travel: These programs let you book travel and then remove the charge from your statement using your points at 1 cent/point. A flight that you paid $400 for would take 40,000 points to remove from your credit balance. This is the same value as getting cash back for your points and buying the ticket with cash. The most popular cards in this category is the Capital One Venture card or the BarclayCard Arrivals+.
- Program-Specific Travel: These programs give you rewards in the form of miles or points directly with the partner of your choice. For example, a round-trip domestic flight on Frontier would take 20,000 Frontier Miles, while a flight on Southwest has variable point values. Some examples of these are the United Explorer Card or the Marriott Rewards Premier Card.
- Hybrid Travel: These programs give you rewards in the form of points that can be transferred to cash at 1 cent/point or transferred into miles or points directly with your travel partner of choice. These cards are generally the most useful because they give you the option of being able to shop around with multiple airlines and paying with cents or miles. The most popular Hybrid cards are the Chase Sapphire Preferred and the Starwood Preferred Guest cards.
The type of travel program you choose can be important. Cash-Back Travel usually earns more points per dollar on all purchases, can be spent on different travel providers and allows you to redeem for all sorts of travel, not just the programs that your credit card provider has partnered with. Program-Specific Travel earns a lot of points per dollar spent with your specific travel partner and often get you great benefits like priority boarding or free checked bags. Hybrid Travel cards may earn fewer points per dollar on general purchases but usually have specific multiplier categories and the flexibility of being able to redeem for cash or miles and shop around.
Being able to book in miles with Program-Specific or Hybrid cards also has the advantage of increased redemption value on upgrades. For example, an upgrade that costs $600 might only cost 20,000 miles.
I’d recommend a Hybrid Travel program since that lets you look around for the biggest discounts and best prices using either cash back or miles. When considering a Hybrid card, it’s important to understand cash vs. point value. There are two ways to consider it:
- Divide the amount of points to book a flight by 100 to get the cash-back value of those points. This is helpful when comparing a points flight to a cash flight.
- Divide the cash price of a flight by the number of points necessary to get the cents per point value. This is helpful when comparing two different points flights.
I regularly see flights that are $300 go for the points equivalent of $150 (15k points) and last year I booked a $1,400 flight for the points equivalent of $650. On the other hand, if a flight is only $200 but would cost 30,000 points, you’re better off exchanging 20,000 in points and buying the flight with cash.
Choose A Rewards Earning Plan: So now that you’ve decided that credit card points can help you reach your travel goal, how do you get started? Let’s first talk about how you’ll be using them, and then we’ll pick the cards for you.
Some people swear by credit card churning, which is signing up for credit cards just to get the sign-up bonus, and then canceling them. While it’s true that you can rack up a lot of points quickly with this method, it has a larger impact on your credit score and it often requires the cash cushion to afford some of the spending requirements necessary to get those bonuses. If you’re interested in churning, The Points Guy is my favorite authority figure in the rewards travel realm.
Photo credit: TaxRebate.org.co.uk
The slower, more conservative route is to get a few credit cards that provide bonuses in a wide variety of categories and use them for all of your purchases. It’s easier if all of your cards belong to one rewards program so that you can view your balance in one place, but it’s okay to be spread out across programs as well. A very helpful tool to get started is Credit Card Tune Up. The Points Guy also has a tool to determine the best cards for your spending. All you have to do is put in how much you spend in certain categories and it’ll let you know which cards would get you the best bonuses. For example, my first card earns 5x points in categories that change quarterly. I have another card that earns 5x points on utilities and cell phone, and another that earns 2x points on gas, restaurants, taxis, airlines and hotel. Choosing cards in a wide variety of bonus categories lets you maximize points on things you already purchase.
As you search, be sure to keep these things in mind:
- The type of reward you’re getting (cash-back, program-specific or hybrid).
- Annual fees. Don’t let an annual fee dissuade you from getting a card, because it’s often worth it. Saving two hundred dollars on a flight more than makes up for a $65 or $95 annual fee, as long as you save that much each year.
- If you’re planning on traveling internationally, you’ll want to opt for at least one card that doesn’t have foreign transaction fees, since those can add up quickly.
- Other benefits: some cards offer a concierge service. I had a coworker who went to Disney Land with his family but he didn’t know what fun events to go to. The concierge recommended a breakfast with the princesses for his daughter and was even able to get extra tickets even though it was sold out for the public. Most cards also have all sorts of side benefits like purchase protection or extended warranties, so watch for those as well.
Applying for Credit: When you’ve chosen the cards you’d like to apply for, you’ll want to watch out for a few things as well. First, applying for multiple cards at once may result in multiple inquiries into your credit history, which can lower your score. This hit only lasts a few months, but if you’ll be applying for a loan in the near future you should hold off.
Second, be aware of the requirements for a sign-up bonus. Most cards with a sign-up bonus will require some level of spending within a certain timeframe, so don’t get multiple cards at once if spending that much is going to be unrealistic.
Rack Up Credit Card Points
Now that you have your cards in hand, it’s time to start earning your travel points. Here are a few ways to start racking up those points for your dream trip.
Use Cards for Everyday Purchases: The most important thing is to put all of your spending on cards, even small expenses. Groceries for the week? On one credit card. A pack of gum at the gas station? On another credit card. You might have one card that gives you more points at gas stations, another that gives you more points for utilities and another that gives you more points at grocery stores.
If you have a tough time remembering, it can be helpful to write the bonus categories on the cards themselves so that you always know which card gives you the best points return for the purchase you’re about to make. An extension like Pick2Pay can also help determine which cards will get you the best bonuses on specific transactions online. It’s helpful to read through the benefits of the card as you may get annual percentage bonuses on one card and not another.
Set Up Auto-Pay: Beyond everyday spending, you can put most of your recurring spending on your credit cards as well. Hook up your Netflix account, your gym membership and your utilities and set them to auto-pay so you’re earning points while you sleep. This can also be helpful if you have some older credit cards that you don’t use often, but you want to keep active for length of credit history. I have one card that sits in a drawer at home and only pays my Netflix each month, but I don’t want to close it because it’s the longest piece of credit history I have. If you are able to pay rent with a credit card, definitely take advantage of that. It’s really helpful to make a list of the accounts that you have set to auto-pay and which card they’re on so that you know exactly what you’ll need to modify if your card gets a new expiration date or you change billing addresses.
Take Advantage of Bonuses and Affiliates: Hotel and airline programs will also have special bonuses that you can sign up for. All you have to do is link the credit cards that you would use at those restaurants and they’ll automatically add points to your United account. Banks also have special bonuses that give you more points back with certain retailers or on certain days of the month. Most of the banks also have some sort of affiliate mall where you can earn extra points for going through their affiliate links, and the bonuses on these can be big. Keep your eye out for these types of bonuses to get that little extra bump in your points.
Tools to Help Manage Multiple Credit Cards
When you’re splitting your spending among several different credit cards, it’s important to be able to measure your spending and compare it to your checking account and ability to pay it off.
Keep Track of Balances and Spending Habits: With all of these different accounts, it can be challenging to keep track of everything. We’ve talked about Mint a ton (and it actually won the Most Popular Personal Finance Tool at Lifehacker), but it deserves a mention here. By hooking up your different accounts you will be able to see everything in one place and compare your credit card debt to your cash balance. It’s also great for getting notifications if something goes awry, like getting an interest charge on your credit balance. A few months ago Mint notified me that I had received an interest charge even though I had set my account to auto-pay in full, so I contacted customer service and they reversed the charge. It has a great site and a great mobile app, along with the ability to set notification thresholds.
Changing Payment Due Dates: Managing multiple credit cards and payment dates can be tough work, so there are a few other ways to make your life easier. You can actually change your credit card statement date to work best with your payment schedule. If you’re paid on the 1st and the 15th, you may want to put one credit card payment date in each half of the month so that you’ve always been paid recently. In order to avoid interest charges, I prefer to set my cards to auto-pay the statement balance in full. If you have your checking account and your credit cards with the same bank, this process is really simple to set up. Between banks you may have another step or two to set up auto-pay, but it’s worth it for the peace of mind and avoiding interest charges.
Managing Rewards Accounts: You’ll also want a way to manage separate rewards accounts, especially if your credit cards span across several rewards programs. AwardWallet is a tool that keeps track of your points balance in several different programs at once and displays them all in one place. It also has the added benefit of alerting you if you have points that are about to expire. Superfly is a similar service for keeping track of rewards balances from several programs, plus it has a flight search option. It’s important to keep track of your balances so you know when you have the points available to take a trip, so think about signing up for a service that can track all of them for you!
Have a Great Trip
Now that you’re armed with all of this information, you know how to find the card that’s right for your spending habits, how to maximize points through spending and bonus programs and how to manage your balances and your rewards points. Now it’s time for you to pick your destination, use your points effectively and enjoy your relaxing vacation!